In memorial of Hindenburg

I just saw he’s stopping. This guy sat on a big chair, and I really liked reading his stuff.

Some of his best work in my opinion was Nikola Motors. That was one of the most ridiculous companies of the SPAC boom and reading him break the news that they literally towed their truck up a hill to roll it down for investor material was one of the funniest things in market history. Another less commonly known thing about Nikola Motors is that before Trevor Miltons fraud made its way onto markets, he was going around advertising in investor presentations by getting pulled onto stages with Anheuser-Busch Clydesdale horses. They even had a dog on the cart. It was a literal dog and pony show. No one in particular thought this was weird, but after the last year in markets I’m finding almost no one has any ability to tell that anything is weird.

If you’re unaware, Nikola had a partnership with BUD 0.00%↑ who ordered a bunch of trucks. I don’t know if they ever made a delivery, but someone in these engineering departments really needs to be the dedicated person to incessantly shout how terrible hydrogen is for transport or energy storage. The energy requirements to create hydrogen from hydrolysis is substantial, the energy density of gaseous hydrogen is incredibly low, and H2 is highly flammable— the origin of Hindenburg’s namesake being the Hindenburg disaster due to a hydrogen explosion (quite appropriate for Hidenburg to have been the one to break Nikola). Even storage of the material in pressurized tanks in liquid form is horrible because it causes rapid deterioration to basically anything that touches it. It’s called hydrogen embrittlement. But I’m going on a tangent and getting back to the topic of short selling.

Pretty much the only valid critique of short selling is when it takes the form of an actual hit piece to benefit off of the volatility of levered instruments... Everything else these people do is a net benefit, and they’re treated horribly. In part I feel this is because longs seem to naturally hate drawdowns in the things they’re invested in. Like it becomes something that’s deleterious to their wellbeing because people start to take their return series and internalize it. Although I feel like if you’re actually invested in something and right about the long run outcome, you should usually want it to go lower in the interim especially when you’re young. You want to let it dribble out. The natural inclination we have is to squeeze the tube. But almost always, you do not want to be actively engaged in squeezing the tube. There’s really only one purpose to squeeze the tube, and that’s when a capital raise is ongoing that’s dependent on the going price of the stock. Sometimes these things need a bit of capital to feed them, or substantial further dilution will invariably ensue.

But either through means of capital returns via reduction of share capital or just the ability to buy more of it later, less is usually more. Or for the particularly savage you want these giant red candles with very large volumes attached that later turn out to be a nothing burger. But as I’m finding the “less is more” mentality is not particularly commonplace, we trust price action as material signal (often it is), and there’s this very large desire by market participants to always be doing something or always have a positive return stream over any time series. But wouldn’t you rather buy a company that goes onto making twenty billion dollars over the next 25 years for a penny? In this way, if short sellers are actually wrong about something— they’re only doing you a benefit by causing the market to fall. And if they’re right, usually their reports contain some amount of information that has a warning signal.

Here’s to you Hidenburg. Your stuff was awesome… and while these days I’m feeling a bit like hatchet field instead of left field, it’s important to do what you must for your own wellbeing. Short sellers are unsung heroes.